Geopolitical Tensions Push Gold Prices Up
The dynamics of gold prices demonstrates the growing likelihood of an escalation of the crisis in Ukraine, according to an analytical note by Julius Baer. The price of gold again rose to 1900 dollars per ounce. In the market, more in the US than in Europe, the demand for "defensive assets" is growing.
“While we cannot rule out further escalation, we consider a period of continued heightened tension to be the most likely scenario,” said Carsten Menke, Next Generation research team leader Julius Baer.
This week there was an inflow of 15 tons of physically backed gold. Most of the increase is due to products registered in the US, while products listed in Europe recorded a much smaller influx, in line with the rhetoric of these two regions.
As discussed earlier, geopolitical tensions usually do not lead to sustained increases in the price of gold, unless there is a sustained negative impact on the economy and/or financial markets.
"We believe that the recent rise in gold prices already partly accounts for the possibility of a military escalation, although prices are likely to rebound if it does occur," Menke said.
The expert does not exclude the possibility of an aggravation, but considers the most likely scenario to be a phase of maintaining heightened tension without a serious military escalation.
In addition, we continue to believe that the refusal to export Russian energy products is unlikely due to serious economic consequences," Menke said. Interestingly, neither oil nor gas prices followed the rise in gold prices during this week.
However, as history shows, the gold market usually loses interest in such geopolitical tensions quite quickly, again provided there is no sustained negative impact. According to the expert, the current conflict is also not the beginning of a new bull market.